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spk09: Good morning, ladies and gentlemen, and welcome to Mountain Province Diamonds, Inc. Q4 and 4-Year 2021 Conference Call and Webcast. At this time, all lines are in the listen-only mode, but following the presentation, we will conduct a question-and-answer session. If at any time during the call you require immediate assistance, please press star zero for the operator. Also note that the call is being recorded on Tuesday, March 29, 2022. And I would like to turn the conference over to Mr. Mark Wall, President and CEO. Please go ahead, sir.
spk03: Thank you very much. Good day to everyone who's dialed in to listen to our full year 2021 and Q4 results call. My name is Mark Wall and I'm the President and CEO of the company. Firstly, I would like to draw your attention to our cautionary and forward-looking statement. This presentation will be posted on our website for anyone who needs additional time to review this statement. Today, I'll start by identifying some of the key highlights from the fourth quarter and full year 2021, as well as commenting on debt and our updated 43-101. I will then pass over to our CFO, Steve Thomas, to discuss the financial performance, and then to Dr. April Haywood, our recently appointed Chief Sustainability Officer, to discuss our hard work on the important area of corporate social responsibility. And then I will close with some comments on exploration and our investment thesis, as well as our direction moving forward. Also present on this call is Reid Mackey, our Vice President and Head of Sales and Marketing, Matt McPhail, our Chief Technical Officer, and Dr. Tom McCandless, our Vice President and Head of Exploration. The team will be available for any questions that you may have. Mountain Province is a Canadian diamond producer, mining Canadian diamonds to the highest standards of corporate social responsibility, and that is something that we're proud of. We own 49% of the Gatcho Quay mine in our Northwest Territories, with the beers owning the remaining 51%. We operate with a joint venture agreement with a four-person management committee, two from De Beers and two from Mountain Province. We've appointed De Beers as the operator of the asset, and that has resulted in the operating systems of De Beers and Anglo American being applied to the assets, including the high standards of corporate social responsibility that I've already mentioned. In addition to the 5,025 hectares of joint venture ground, containing the existing mining operations, Mountain Province is the 100% owner of around 107,000 hectares of highly prospective ground that surrounds the Gatcho Clay assets. We refer to this as the Kennedy properties. I'll speak more about that in a few moments. While this is the discussion around our 2021 results, I will speak briefly about our debt, which is a question on many people's minds. we received an overwhelmingly positive vote from shareholders on the US $50 million financing that we closed yesterday, provided by Mr. Dermot Desmond. Mr. Desmond is a significant shareholder in the company and has been a stalwart of support for the company as it moved through a commodity down cycle as well as a global pandemic, both of which are now largely behind us. As we move towards the term of the existing US $300 million in bonds in mid-December of this year, at this time, we are focused on financing solutions that will be friendly to existing equity holders with some mix of cash flow and debt. I remain very confident that we will get this done in a manner that is positive for equity holders. Our debt to EBITDA target by the end of 2023 is 2 to 1, with a long-term debt to EBITDA target of 1 to 1. Now it's important to say a few words on the macro environment that we find ourselves in and what that means for Mountain Province. On the supply side, we know that the Argyle mine in Australia is closed. And Argyle does provide an analog to some of our diamonds. And that's a large supply stream to take out of the market. In 2021, the global production was around 116 million carats, well down from 152 million carats in 2017, and in a year when we saw increasing demand. We have seen strong demand so far in 2022, with our current pricing significantly better than our 2021 levels. The latest Bain & Company Global Diamond Industry Report contained a bull and a bear case. The bull case has demand continuing to increase by 5% to 7%, slowing to 2% to 4% in 2023, while their bear case sees continued growth of 2% to 4% in 2022, and then in 2023, a slide of 2% to 4%, and a 1% to 3% increase from 2024 onwards. While I don't personally subscribe to the Bain & Company bear case, even in that scenario, we would be well above our 2021 pricing that has led to record results. The unknown factor in all of this is the future of Russian-mined diamonds. In 2021, Russian diamonds were around 30% of all diamonds produced, and we've seen several major retailers move away from Russian diamonds. As a pure Canadian diamond miner, With a partner in De Beers who share our focus on responsible mining, we feel that we're very well positioned through this period. To remind you of the scale of Gatcho Quaid, it is the fifth largest diamond mine in the world in terms of production. Turning to our updated 43-101 that was released last night, we've reviewed the pricing model based on current diamond prices and the production plan as of December 31, The result is a discounted net present value of more than $1.2 billion on a pre-tax, pre-royalty basis, which is a significant increase on the previous MPV at the same discount rate of $595 million. So we've seen an uplift of more than $600 million in value. The details of our updated 43-101 are posted on CDAR and have been subject to a separate press release. I will add that while the updated 43-101 is immensely positive for the company, it does include a production dip in 2024. This is something that management have been working hard with our joint venture partner on since January, and we see a path to positively impact the 2024 mine plan, which remains important work in progress. I will highlight the 2.6 million carats in reserve addition before depletion and note to shareholders that we continue to be focused on mine exploration and resource expansion. Turning to our 2021 results, I will firstly say that 2021 was a record year for Mountain Province in generating $135 million in adjusted EBITDA, a 163% increase relative to 2020. More about that in a moment. you can see our high-level production statistics for the fourth quarter and the full year 2021. Compared to the same quarter last year, we've improved on total tons mined, all tons mined, and all tons treated. However, due to mine sequencing, specifically which parts of the ore body we had access to during the quarter, grade was slightly lower than Q4 2020 at 1.86 carats per tonne. This resulted in quarterly mine production of 1.51 million carats with our 49% share at 741,000 carats. For the full year, our share of the mine's production came to 3.05 million carats. During the year, the mine moved 35.5 million tonnes of combined ore and waste and processed approximately 3.1 million tonnes of ore, noting that these figures include almost an entire month of production lost due to the COVID-19 related stand down at site during February of 2021. In 2021, we mined more ore than was processed, resulting in an ore stockpile of more than 730,000 tonnes containing 1.5 million carats. This gives us additional flexibility as we move into 2022. I'll now pass the presentation over to Steve, who will cover the financial performance.
spk00: Thank you, Mark, and good morning, everyone. It is my pleasure to join Mountain Province colleagues for my first results call, and I look forward in future to being able to talk to equally strong financial progress for the company as we have seen over the last 12 months. As Mark mentioned, I will cover the financial performance for the fourth quarter and year-ending 2021. And although Mark broached our recently closed financing arrangement, I will add some further colour to that and other standout financial progress made in 2021 and since then. All numbers are stated in Canadian dollars unless otherwise indicated. Before focusing on particular aspects of financial performance, I will first provide a high-level financial overview of the business. Bearing in mind that the sales achieved and the costs incurred at the GK operation were done so against the backdrop of continuing action plans to lessen the likelihood and impact of interruptions at the site due to COVID-19, which have been well managed by De Beers as operator, these results are all the more impressive. Per our financial statements, net income has increased to $276.2 million compared to last year's loss of $263.4 million. Of this increase of $540 million, $458 million is due to booking a $241 million reversal of impairment in 2021. compared to an impairment charge of $217 million in 2020. I will speak more on this shortly, but the point to emphasize is twofold. Firstly, that beyond this accounting impact and the associated impacts on depreciation and deferred tax expense, approximately $90 million is due to improved earnings from mine operations. Secondly, the significant reversal of the impairment reflects a sea change in the state of the health of the sector, which is apparent in the rough diamond sales price underpinned by a buoyant downstream market. The $90 million earnings improvement comprises two elements. An $82 million increase in revenue to $308 million in 2021, with the average selling price per carat at $75 per carat versus $51 per carat in 2020. This substantial price increase is the trigger event that required management to review the impairment calculation. Secondly, the reduction in the combined cost of production and acquired diamonds falling from $165 million in 2020 to $156 million in 2021. The reduction in production costs is largely in line with reduced ore treated in 2021 compared to 2020, which results in 3,158 carats sold in 21 compared to 3,329,000 sold in 2020. Despite that reduction in carats sold with ore tons mined during 2021, exceeding those processed, this resulted in a steady buildup of the ore stockpile from 269,000 tons valued at $9.2 million at year end 2020, to 731,000 tonnes valued at $26.4 million at year end 2021. And that will feed into production in 2022. Turning to the balance sheet, its financial capacity and health has increased. That reflects the impairment reversal, which underpins the increase in total assets from $595 million to $877 million, and with the elimination of the balance on the revolving credit facility, which stood at $31.8 million at 2020 year end. But that is offset by a new non-cash deferred tax liability of $21 million, arising due to the impairment reversal. Beyond capacity, the complexion of the balance sheet has changed also, with the recategorization of the US$300 million secured notes payable moving from long-term to current liabilities. And so, until refinance, significantly impacts the consequent working capital number. Considering the year end and into Q1 2022, it is worth noting also that with the termination of the US$33 million term facility at the year end and the US$25 million revolving credit facility ending on the 31st of March this year, the company has now entered into a US$50 million junior credit facility with Dunebridge Worldwide Limited. that does not mature until December 2027. This provides an excellent foundation to proceed the financing solution in respect of the US dollar 300 million senior secured notes, which mature in December 2022. Securing this form of financing early in 2022 puts the company in a far better financial position than it was 12 months ago. I will now turn to unpacking some specific elements of the fourth quarter and the year ended December 2021. Turning first to earnings, in the fourth quarter of 2021, the company sold 809,000 carats for $85 million at an average realized price of $105 per carat, i.e. US $84 per carat. Compared to sales in the fourth quarter of 2020 of 957,000 carats for $80.2 million at an average realized value of $84 per carat, i.e. US $65 per carat. The two key takeaway messages from this are that although the reduction in carrots reflects unplanned plant downtime, which happened in addition to the planned maintenance downtime due to COVID constraints, limited headcount flexibility, the situation is now controlled with the site moving from peaking at around 55 people in quarantine to several weeks of zero cases. And as of today, there were only four cases identified at the last crew change requiring quarantine. Secondly, the price per carat achieved in Q4 has continued to go from strength to strength in the first two sales of the year, averaging over US$130 per carat. In hand with these sales, Q4's cash cost per carat recovered at $60 is slightly above the previous year's Q4 of $56 per carat and the full year average for 2021 of $55 per carat. Despite the impact on business as usual due to COVID-related measures, the operation has responded with initiatives to improve both labor and equipment availability, resulting in 10% more tons mined in Q4 2021 across the 5034, Hearn and Tuzo pipes compared to Q4 of 2020. For Q4 2021, this performance translated into reported net income of $237.6 million or $1.13 per share. compared to a loss of $189.2 million or negative $0.90 per share for Q4 2020. For the full year ended 2021, net income was $276.2 million or $1.31 per share versus a loss of $263.4 million or negative $1.25 per share for year end 2020. To normalize these comparisons, given the significant impact of impairment treatment, we should consider adjusted EBITDA, which was comparable at $37.1 million for Q4 2021, compared to $37.2 million for Q4 2020. However, for the full year 2021, adjusted EBITDA was $135.3 million with a margin of 44% versus the year-end 2020 with adjusted EBITDA of $51.5 million with a margin of 23%. This underscores the perspective that 2021 has been an exceptionally strong year for the company. Turning now to the balance sheet, although dominated by the impact of one, the impairment reversal, which increased property, plant, and equipment at the year-end 21 to $714.5 million, and two, the recategorization of the loan notes payable to short-term, it is worth noting the following elements also. Regarding restricted cash, a further cash injection of $10 million took place in Q4, and this is due to be followed by an additional $10 million per annum for the next three years, subject to any future changes to the assessed decommissioning and restoration liability. In 2021, the decommissioning and restoration liability for the GK mine increased from $70.5 million at year-end 2020 to $90.4 million at the year-end 2021, resulting from assessed refinement in scope, individual unit cost increases, and changes in discount rates. Secondly, the balance sheet now reflects the deferred tax liability established in Q421 because of the impairment reversal mentioned earlier. This non-cash liability recognises that the book value of depreciation applicable to the written-up assets exceeds the future tax allowances available on the tax equivalent base. In conclusion, the summary portrays what has been a strong year for the company, both operationally and financially. The program of efficiencies that are necessary and constant feature of this complex mine are continuing, with the current Mountain Province team certainly able to contribute effectively to driving the operator towards these continual improvements. These initiatives are particularly important as we move into a year that is exhibiting increased price inflation, especially in relation to recent events impacting the price of fuel delivered on the winter road, a tightening labor market, and competing with mining operations across the country driven by elevated commodity prices. However, in hand with this, we have experienced significant growth in rough diamond prices since the lows of mid-2020 that are well ahead of these inflationary pressures. Having dealt with the financial performance during 2021, I would like to discuss two final matters. Firstly, and as a positive development for the mine, During mining in the open months of 2022, additional unmodeled resource has been encountered that is economic, but carrying a lower grade than planned mining areas. This incremental unmodeled kimberlite will be incorporated into the stockpile strategy throughout 2022 with a net effect of lowering process grade, but a net increase in life of mine or tons. It is seen as a positive by Mountain Province that more diamond-bearing ore is being mined that existed in the mine plan. Secondly, regarding guidance for 2022, Now that we are well advanced into the year and through the toughest quarter in relation to weather conditions that often impact processing availability, and also aware of the impact of current exceptional inflationary catalysts on total winter road spend, particularly fuel costs, we feel it is appropriate to revise the guidance provided for the year ended 2022. In line with yesterday's press release and in summary, there are three events playing into this consideration of re-guiding. Firstly, to the global oil price shock during the period when approximately 55 million litres of diesel are procured and delivered, a material once-off and unbudgeted diesel price increase was experienced. Secondly, the impact of previously announced COVID-19 outbreak at site. And thirdly, failure of the pitman bearing in the primary crusher. These three matters together impacting annual production and costs. Now, the good news is that for each of these matters, that impacted dollar cost and production is quantifiable and now behind us. And for fuel, 100% of the diesel for the year has been purchased. Secondly, the site is experiencing no interruption from COVID-19 cases. And lastly, the crusher has been repaired and is operating at full capacity. Although now managed, given that these issues combine to impact production and cost metrics in the 2022 operating year, the company feels The following revised targets warrant re-guidance. Carrots recovered are revised to 6.2 to 6.4 million from the previous 6.3 to 6.7 million. Production costs per tonne treated are revised to $131 to $137 from the previous $121 to $127. And lastly, production costs per carat recovered are revised to $71 to 76 versus the previous range of $64 to 68. In respect of the following metrics regarding total tons mined or tons mined or tons treated and sustaining capital expenditure, those targets remain unchanged. Thank you for your attention. And with that, I will now pass over the presentation to April, who will briefly discuss our work around sustainable development initiatives. April.
spk10: Thank you, Steve. I joined the Mountain Province team on January 1st of this year as the company's first Chief Sustainability Officer. I'm excited to continue to build on the last 10 years of my career, which have been dedicated to advancing sustainable development in Northern Canada well as my technical expertise in ecology in which i hold a phd from mcmaster university i'm pleased to be able to share a few sustainable development related highlights from the gotcha quay mine today in advance of the release of the gotcha quay mines 2021 sustainability report which will be released in q2 of 2022 with respect to employment 42 of the gotcha quay mines 583 full-time employees and contractors were from the Northwest Territories. Of the Northwest Territories workers, 58% were Indigenous, which is about 26% of the total workforce. While work is ongoing, and we always want to drive that number higher, this is an excellent result, and it is a testament to the engagement, training, and recruitment programs that have been rolled out to make this result possible. With respect to procurement, I'm pleased to share that the Gatcha Kwe mine's northern spend target of 60% was exceeded for the fifth consecutive year. In fact, approximately 70% of the $292 million spent by the Gatcha Kwe mine were spent with Northwest Territories-based businesses, and 38% of the money spent in the Territory, approximately 77 million Canadian, was spent with Indigenous businesses, which is an important focus area for Mountain Province. Ten scholarships were awarded to Northwest Territories women studying science, technology, engineering, and mathematics, As part of the work, we continue to undertake to increase the representation of women in STEM disciplines and ultimately in the mining industry. The Gatcha Kwe mine also provided more than 670,000 Canadian dollars in cash and in-kind contributions to support more than 50 community initiatives in 2021. These contributions aim to empower community-led initiatives related to capacity development, community well-being, culture, and education. I'll now pass the presentation back to Mark who will discuss exploration and our strategy.
spk03: Thanks, April. This is really important work, and I appreciate your focus on it. In 2022, we spent a lot of time planning a new discovery-focused exploration program on the 100% owned Kennedy properties. We have a 6,000-meter drill program planned, and this program is being executed by our team, who have many years of experience exploring for diamonds in the Northwest Territories. And in fact, we're involved in the discoveries of the existing Kelvin and Faraday deposits. Our first two holes in an area we call the South Anomaly, quite close to the existing Faraday deposits, both hit kimberlite with intersections of five and six meters respectively. This is encouraging as it confirms the gravity and resistivity work that was done to predict that this would be a kimberlite target area. Drilling is continuing as we speak to better understand these interceptions. During 2021, we took surface samples on our new Kennedy East claims. This area is important as any indicator minerals for kimberlite deposits will not have come from the existing Gaucho Quay mine, as we know that the ice movement direction over time has been from east to west. And this area is east of all known deposits. Very preliminary results from 27 till samples indicate kimberlite indicator minerals, specifically pyrote garnet, which is an important and readily identifiable indicator mineral. This makes us very optimistic that we have a previously unexplored area with potential kimberlite signatures immediately to the east of the Gaucho Quay mine and with confidence that the indicator minerals could not have come from known diamond deposits. We are early in our 2022 program, but the indications are very good so far. In summary, 2021 was a record year and in 2022 we've seen a further price recovery with a bright future ahead. It's important for our owners to understand our strategy to move forward and grow value in each share of the company. Our strategy has five pillars. The first, as you should see in any mining company, is to optimize the business. That is to ensure a focus on safety and health while being good stewards of the environment, optimize and manage costs while maximizing throughput and diamond recovery. The second is to drive sustainable development. As we've discussed in this presentation, much work has been done, and we will continue to do more to reduce CO2 emissions, focus on supporting Indigenous people in Canada, including through employment and procurement choices, as well as continuing to find ways to improve the lives of our local communities. The third pillar is to optimise our capital structure. We've closed the $50 million debt facility. We will next deal with the $300 million in bonds maturing at the end of the year as we continue to focus on creating an optimal capital structure for the company. The fourth pillar is to extend the mine life of the existing Gaucho Koi mine through in-mine and near-mine exploration on the joint venture property. This work is already underway. And lastly, we'll focus on finding new mines via focused exploration on our large and prospective Kennedy land package. We are busy executing the 2022 program and have encouraging results so far. These objectives focus our efforts, and the annual scorecards for all senior executives are directly linked to these objectives. To close, I would like to reiterate our investment thesis. Firstly, we are a Canadian diamond producer and explorer with a globally significant asset and a solid current life of mine, together with exploration upside, both on the existing joint venture land as well as our broader land package. Secondly, we have a sophisticated operating and joint venture partner in De Beers and Anglo America, with a strong focus on corporate social responsibility, safety and health, and environmental stewardship. Thirdly, we're in a favourable mining jurisdiction, with transparent regulation, skilled labour, a reliable supply chain, and stable mineral resource tenure. Our latest 43-101 provides a net asset value of more than $1.2 billion discounted pre-tax. And fifth, while everyone has their own model, our internal model shows a net asset value per share of $2.44. And that's without any value assigned to the resource of 13.6 million indicated carats and 7.3 million in third carats at the Kelvin and Faraday deposits respectively, and also does not assign value to the additional upside that we're busy exploring for. With that, I thank you for your attention, and the team will now take questions.
spk09: Thank you, Mr. Wall. Ladies and gentlemen, if you would like to ask a question over the phone, please press star followed by one on your touch-tone phone. You will then hear a three-tone prompt acknowledging your request. And if you would like to remove yourself from the question queue, please press star followed by two. And if you're using your speakerphone, we do ask that you please lift the handset before pressing any keys. Please go ahead and press star one now if you do have a phone question. And your first question will be from Scott McDonald at Scotiabank. Please go ahead.
spk04: Hi, good morning, Mark and team. Thank you very much for the fulsome update, especially the updated technical report. I know that's a lot of work, so it's very much appreciated. I do have a few questions for you, Mark, and the team. Maybe I'd actually start with Reid. Obviously, a lot of macro events in the world affecting diamond supply and demand right now. Could you highlight which factors you expect to be the major diamond price drivers this year and maybe any preliminary thoughts on how you see this year playing out in terms of price evolution?
spk02: Yeah, sure. Scott, thanks for it. It's a good question. Obviously it's on everyone's lips at the moment. I think that obviously with the, with the events that have happened in the Ukraine, the invasion of the Ukraine, Um, the, the industry is still reacting to these at the moment. And so I think, um, you know, that factor, uh, and its impact on industry still has to be fully realized, but I would anticipate that, um, it's going to accelerate, you know, things that have been happening in the, in the industry, in the market, right down to the consumer level regarding diamond origin. And, um, Any discussions or increased discussions within the industry and the value at the consumer interface on origin is obviously a story that bodes well for us. We have a good story to tell, as April detailed earlier. So I would expect an obvious impact, a positive impact, once the dust settles on the immediacy of the events. But I think the key price driver is the one that we've been seeing, you know, previous, you know, the geopolitical events, which is, you know, we've seen increased demand for diamonds at retail through this past Christmas season. And, you know, there's no sign of that abating talking to retailers. And I would expect that once these, you know, the dust settles on the current crisis, that you will see, we'll start to get a more realistic picture on the retail demand for diamonds, but there's no signs of that abating at the moment. So I think that's going to be your key. I'm not going to obviously forecast price per carat or price per carat growth, but I think on an overall basis that it looks positive.
spk04: Okay, great. Thank you very much for that. And then maybe one for Steve. Just wanted to ask a bit about the impact of diesel prices on your costs. Obviously, that impacted your cost guidance for 2022. But I also wanted to understand how fuel costs could impact your life and mind costs or the sensitivity there as reflected in the technical report. Could you tell us what diesel price is assumed in the technical report in the future years and how that compares to the price assumption that's in your 2022 guidance?
spk00: Yes, Scott, good morning and thanks for the question. $1.13 is the answer to your final question there that's gone into the technical report. That's fully loaded delivered cost to site, so it includes the tax element and the trucking element. In the guidance, because of this exceptional inflationary spike we've experienced, something closer to $1.50 is what we've put into the 2022 guidance, which I spoke to.
spk04: And is that Canadian dollars? Yes, it is. And is there any way you can share some sort of sensitivity to your overall production costs to higher or lower diesel prices? Yeah.
spk00: Scott, not really at this stage. I mean, obviously, we've indicated that current global events have driven that price, as we've all experienced personally, and certainly the Winter Road suffered that consequence. But in terms of modeling that into a full life of mine technical report, You know, we take a longer view on what is the sustainable expected cost per liter. And, you know, notwithstanding that, there are obviously continual efforts and initiatives to reduce the reliance on fuel over the life of mine. So, with all of that into play, no, I haven't got a number that I would share with you this morning.
spk04: Fair enough. Could you share what the diesel price assumption was in the original guidance? original cost guidance from January yeah what 113 1.13 Canadian dollars okay thank you so so most of the change to your cost guidance is attributable to that increase of the diesel price correct
spk00: And there has been a great response by the operator in conjunction with us to, of course, look at opportunities for efficiency and reducing the volume aspect facing that price increase.
spk04: Okay, gotcha. Thank you. And maybe just one last one for Mark. Could you speak to any of the specific opportunities you're looking at to improve that 2024 year in the Life of Mine plan? Or any other opportunities that you care to mention on enhancing the life of mine plan overall? Anything specific at this point?
spk03: Sure, Scott. The key to 2024 is grade. So the throughput is the throughput with the plant running at an optimized throughput rate. So 2024 is a question about optimizing grade. And it's pretty common. I mean, in my past lives in mining companies, you have a mine plan a couple of years out that has a trough in it for numerous reasons, and then everyone turns their mind to it. So we're very busy turning our mind to that right now. I was on site a couple of weeks ago going through that in some detail with the tech services manager, Kevin, on site, who is very much on top of this. So to answer your question in summary, it's a question of grade and it's a question of bringing grade into the plan. Now the advantage that we have, as Steve mentioned, is that there are significant areas of the mine where there is material that is modelled as waste that is being mined as ore. We have some more work to do to further drill that out in order to put it in the plan. My bias normally would be don't drill it because I don't want to spend the money, just mine it. But the problem with that is we can't then put it in the plan. So we will spend the money and we will drill it so that we can put it in the plan. And that's our strategy to clean up 2024. And I can say that work is well advanced, but it's It's not in a final form that it would be the right thing for me to do to give you the detailed numbers. There are a whole bunch of initiatives going on. The continuous improvement group at site are very sophisticated. One of the initiatives I can talk to that I really like is an idling initiative. It's around what happens in these cold weather environments. It was the same when I was working in high altitude in South America. is everything is left running all of the time and it's done to just keep the engines moving and running and they don't freeze. That uses a lot of diesel. It also actually increases your maintenance because when you idle large equipment, then it's not really meant to do that. So it actually increases your maintenance exponentially. So there's issues around greenhouse gases, taxes related to greenhouse gases, use of diesel, maintenance, maintenance costs, human resources. So that is a great initiative that will have many, many touch points from environment to cost as that gets executed. So there's many, many initiatives that are moving forward in order to optimize the costs and the production of the mine. And again, the headline to your question around 2024 is bright.
spk04: Gotcha. Thank you very much for that. That's it for my questions for now. Thanks, everyone.
spk09: Thank you. Next question will be from Daniel McKenvey at Rossport Investments. Please go ahead.
spk05: Good morning, Mark and everyone. Just on the 24, it sounds like the optimism is it's reasonably good. Taking that waste and putting it into ore by drilling, though, so far the waste that you're turning into ore is not, the grade so far is not on the high end of the scale, correct?
spk03: Daniel, the grade's solid. The grade is well above one carat a ton. It's good, profitable ore. It just isn't as high-grade ore as the ore at the center of the pipe. So it's definitely not waste. It's very good, profitable, economic ore that isn't in the plant. And so I think there's some really interesting opportunity from a mine life expansion in better understanding what these ore bodies do at depth as we look at all of the opportunities. And as we bottom these pits out, In front of mine, and myself and Matt discuss this fairly regularly, is these ore bodies are flat at the bottom, if you look at them. But they're not flat at the bottom because they're flat. They're flat at the bottom because that's where we drill to. So part of what we need to do in a new price environment and an environment where we're finding ore that's modelled as waste, which tells you the ore body is larger than is begin to think about what might a different mining method look like and can it, in fact, work at this mine.
spk05: Okay. Okay, thank you. A couple of other questions. The reserve write-off, and excuse me, I missed about five minutes of the call, so hopefully it's not being redundant, but the reserve write-off and reinstatement, can you just tell us the chronology of that and just the order of turning this? I'm guessing it's all diamond price related, but maybe just... Tell us a little bit about how that review and audit went.
spk03: Sure. Perhaps, Matt, would you like to have a crack at that? We haven't heard from you yet. It's always nice to hear your voice.
spk07: Just a clarification. Are you asking about the audit, the impairment reversal, or the reserve update? Yes. I would rather direct that at Steve. He's much more attuned with the impairment reversal. I had a hand in it, but more on the technical side.
spk03: Fair enough. I thought we were talking about the changes in the model of time, but fine. Fire away, Steve. Yeah.
spk00: Thanks, Mark. Happy to step into that. And, you know, this item was the single most significant item going through the financials at this year end and was poured over at great length by ourselves and our auditors. We come to the conclusion on the initial impairment in 2019 and 2020 and the reversal in 2021 with reference to expert third parties who give us their views on long-run foreign exchange, appropriate discount rates, and most importantly, long-run price assumptions. Now in 2019 and 2020 when we had the impairment, the approach to estimating future price was to take stock of the prevailing price at that point in time and use that as a projection forward, but referencing it to historical performance. That's what the auditors would do. But when we took those impairments in 2019 and especially 2020, where the impairment was north of $200 million, that was a particularly low price point for rough product. When we come to 2021 and we've seen this significant price improvement, not surprisingly, everyone was expecting and getting ready for the reversal. However, I will mention that what we've agreed with KPMG is to look at that forward price based on our historical price achieved from the mine since inception albeit dialing out the 2020 year, which was deemed to be exceptional in its impact. I mention all of that because I think we have an excellent, stable methodology for this reversal. And going forward, we will use that approach. And it means you're not so subject to price swings that might happen at the time of the calculation. so less volatility involved. So I'll stop there and ask, has that addressed your question?
spk05: Yes. Yes, thank you. Two more, if I can get them in. First one, I might have missed any comments on the refinancing. Are you hoping to get the refinancing done in the next quarter or two?
spk03: Well, okay. I'll take that one Daniel. So I think firstly it's important that we pause and look at what we've done over the last few months is really look at some key structural areas. So the management team has been adjusted as you're aware. We've developed a business strategy that we've been through today and a business plan, a formal business plan for 2022. We've integrated that properly into scorecards to make sure that everyone is executing to the plan. We've really stood back and developed a detailed exploration plan that we're executing. And then we've closed the US $50 million in debt financing and announced that last night. So we've got that behind us. With our $300 million US in bonds, it's important to understand as well for all of us to understand that the $250 million of those bonds are held between three sophisticated bondholders, one of whom is our largest shareholder, Mr. Dermot Desmond. And we are obviously in close contact as normal course of business with our major bondholders. So with well more than $50 million to be available by the end of the year through cash flow and cash holdings, I'm very, very confident in our ability to solve the bond refinancing, and we're currently not in a particular rush to do that.
spk05: Okay. I don't want to get stuck on this, but just that there's a brief way to answer. What would say two or three steps are needed to get that done by the end of the year that take time?
spk03: I'm sorry, Daniel, could you say that again?
spk05: What are the two or three steps needed to get the refinancing done by the end of the year that take time?
spk03: We need alignment of the board on exactly what we're going to do, exactly what the mix will look like between different debt options that are available to us. And then we need to enter into and formalize the discussions with the key parties that we would execute that with. And then we need to do all of the required legal and stock exchange related steps.
spk05: Okay. Thank you. Last question. The $2 and change NAV that you have internally, no surprise, it makes sense, but that's based on the new technical report, et cetera. Just maybe summarize the assumptions in it.
spk07: Matt here. I can take that. Yeah, we took the after-tax, after-royalty NPV at 7.5% at GK, which equates to $3.78 on a fully diluted share count. Subtracted or added networking capital at year-end, treated the long-term debt as a separate entity, divided by fully diluted shares, and then subtracted a quantity for the discounted cost to run G&A, to run the company, and all of those added together, included with some money coming in from the dilutive equity instruments, results in that corporate adjusted number of negative 1.34. Put them all together, $2.44 Canadian per share attributable to the company.
spk05: Okay, and that's assuming the long-run diamond prices in the technical report.
spk08: Correct.
spk05: Okay. Great. Thank you very much.
spk09: Thank you. Next question will be from Daniel Michael, private investor. Please go ahead.
spk01: Can you add some color to the marketing agreement or sales agreement you have with the Chinese jewelry chain?
spk08: Ray?
spk02: Yeah, sure. I'll take that one. Well, it's actually under confidentiality. It's safe to say that It's a welcome event. It kind of reflects an increased interest that we're seeing at the retailer interface for our product and for origin-based marketing. But getting into the actual details of the product involved or pricing is a matter of confidentiality, obviously. But like I said, it reflects a positive impact evolution of our marketing strategy to support retailers who want to market based on origin and the positive stories that we have around that.
spk01: Can you disclose if it's at fixed pricing?
spk02: I can't disclose that it's at fixed pricing. One of the fortunate aspects of our marketing platforms is that we have a Obviously, the majority of our product is sold via tenders, which give us a very nuanced, detailed view of market prices on a sale-by-sale basis. So that always informs our pricing decisions in any marketing agreements or sales agreements that we reach with anybody, for that matter.
spk01: Will you be breaking out the quarterly sales? How much is via regular tender versus via this new methodology?
spk02: That hasn't been decided yet. Obviously, it is a relatively new development in the evolution of our marketing strategy. So I would expect, I don't know if it would be something that we would be breaking out immediately because that would then isolate that individual business. But perhaps going forward, if it is an evolution that brings in other retailers where confidentiality can be maintained through grouping with various retailers, for example, then that's something we could look to. But I don't foresee that in the immediate future.
spk01: Thank you.
spk09: Thank you. As a reminder, ladies and gentlemen, if you would like to ask a phone question, please press star followed by one. And your next question will be from Paul Zamiski at PZDA. Please go ahead.
spk06: Hi, everybody. Congrats on the positive price momentum and the impediment reversal. Maybe just following up on the question Scott was asking you earlier on inflation, I guess kind of putting diesel aside, what are you seeing in, you know, inflation related to consumables such as explosives, tires, and, you know, replacement parts for trucks, that sort of thing? And then second question, on the Chow Tai Fook deal, Was that something that you approached them on or did they approach you? Thanks.
spk08: Steve, you'll take the inflation. I'll leave? Yep. Far away, Steve.
spk00: In terms of the inflation in the technical report, we worked that number in conjunction with technical report advisors, JDS, and took a long-term view, single digits. So we haven't unduly influenced that by current fuel price inflation. As I said, we don't know that that's anything more than an exceptional current event. So nothing in that technical report would be surprising from the point of view of single-digit inflation.
spk07: Yeah, I will just echo Steve's comment. There's no extraordinary inflation baked into the technical report.
spk00: And the second part of the question, I think, was that regarding the Chow Tai Fook deal?
spk03: Could you repeat that, please? That's a great question.
spk02: Yeah, that's a neat question. It's a good question, Paul. I guess I can answer it this way. We've had a long relationship with Chow. That agreement was born out of taking a very detailed look at our product. As you're well aware, Chow Tai Fook is a very sophisticated buyer in the market. It's not something that happened overnight, I can say that. And it's consistent with what we've seen more recently, and I think for obvious reasons, more interest from the retailers looking upstream to find opportunities to access our diamonds, diamonds with a positive story where origin can be looked at in terms of highlighting the positive attributes of of diamonds and of their downstream retail brand. So it's, you know, these, as you can appreciate with these sophisticated retailers, these are things they've been looking at for a long time, but the recent events have just accelerated this, you know, this development and which is a welcome development in the industry.
spk06: Right. Yeah, that's great to hear. Thanks, Reid. And sorry, I wasn't clear. I guess my question on consumable inflation was more related to the guidance change. So What are you seeing, you know, in those items now versus, say, three months ago, six months ago? I guess it's kind of what I was hoping to get at.
spk02: Great. I'll pass that one back to Steve.
spk00: Paul, I would say that the fuel has been the standout commodity for which we've seen this exceptional bump during the winter road period, not other commodities equally affected. Literally, it's more on a this week versus last week versus last month. Although we've seen some increase in the fuel price during the last couple of weeks. Nothing material for the company has changed. The vast amount of the fuel was delivered by the start of March. The residual that was delivered thereafter, we put in a pretty healthy estimate that it would go up. It's gone up a bit more than we anticipated, but nothing material. And other than fuel, don't think there's anything that the guidance, if I'd cut it in the last hour, would be different to what we've put into the public arena.
spk06: Got it. Okay. Very clear. Thank you very much. Thank you.
spk09: Thank you. And at this time, we have no further questions. Please proceed.
spk07: Thanks, Operator. I have no questions on the webcast. So, Mark, I think we're safe to wrap it up.
spk03: Very good. Thanks, Tim. And thanks, everyone on the call. Thanks, investors. We appreciate your support. And we look forward to updating you on future calls.
spk09: Thank you, Mr. Wall. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. And at this time, we do ask that you please disconnect your lines.
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